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RAPAPORT... De Beers will
allow sightholders to defer their entire November allocations until December as
diamond manufacturers remain under pressure from weak market conditions.
“Further to
discussions with several of you following recent cutting center visits, we are
writing to provide an overview of some of the additional flexibility we will be
putting in place for sights 9 and 10,” the company said in a note to sightholders
obtained by Rapaport News. “We understand that many businesses'
short-term demand requirements may well have seen some significant changes, so
we are looking to find the best ways to be flexible in meeting your needs.”
Sightholders
reported a somber mood at the October
sight and refused about half of their allocated supply, which was
consistent with the level of deferrals throughout the second half of the year.
Last month’s sight had an estimated value of $200 million and De Beers rough
sales are down about 38 percent year on year so far in 2015, according to
Rapaport estimates.
Diamond manufacturers
have significantly reduced their rough diamond intake and factory output in
2015 as polished sales declined largely due to a slowdown in China.
Sarine
Technologies, which supplies equipment used in diamond manufacturing, said it
expects manufacturing activity will continue to be restrained and will only
start to trend back to normal after Diwali - toward the end of November - or in
the first quarter of 2016. Much depends on “developments in rough diamond
pricing and holiday retail sales,” the company said in an October 1 note
warning investors of lower-than-expected third quarter revenue.
Price
Stability, Supply Flexibility
De Beers and
ALROSA kept rough prices stable in October, having reduced prices by 8 percent
to 10 percent in the third quarter. Sightholders expect prices from both the
major miners to remain relatively stable until the end of the year.
“They’re
holding on as long as they can because they’ve learned from the past that if
they drop prices it takes them years to bring them back up,” said an
Israel-based manufacturer who requested anonymity. “They’re fighting tooth and
nail to keep prices high – allowing sightholders to take what they need, fewer
goods, and delay the conversation by as much as possible.”
In its note,
De Beers said sightholders could decide whether they would like to defer or
bring forward as much of their allocations as they choose (i.e. all or some
elements of their allocation), from one sight to the next in November and
December. That means that sightholders have the flexibility to take delivery of
their allocated supply over the next two sights in any way that suits their
needs, the company explained.
In addition,
sightholders can also apply for goods that are not in their intentions to offer
(ITO’s), subject to availability, “so as to provide you with the flexibility to
meet your evolving needs in this fast-moving environment,” De Beers stated.
Cautious
Outlook
Still, diamond
trading is expected to remain cautious in the next two months. Sarine explained
that although there has been a significant correction of rough prices [in the
third quarter], there is still reluctance by both mid- and downstream buyers to
replenish stock, as they believe further price adjustments are warranted and
may be forthcoming.
Sightholders
who spoke with Rapaport News during the October sight were uncertain whether
the decline will continue or if the holiday season would lift trading in the
coming months.
De Beers
recognized their predicament, stating, “While we have traditionally seen a
firming up of polished diamond demand as the holiday selling season progresses,
and we anticipate potential for the same this year as our additional marketing
spend gains traction with consumers, we fully appreciate that the midstream
continues to face challenges.”
At least at
next week’s sight, which runs November 2 to 6, rough demand is expected to remain
subdued.
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